Earlier this month Commission officials testified on
Capitol Hill regarding the failure of the agency to investigate the alleged
Stanford Ponzi scheme at an earlier date. Lawmakers were assured that a series
of steps have been taken to preclude a repetition of such conduct in the
future. The focus of these steps is to protect investors from such fraudsters.
By all accounts those steps have been more than effective
in finding and bringing investment fund cases. Since Madoff and Stanford the
Commission has brought a series these cases. Two more of were filed on Friday,
one which looks like most others and one which differs although in both the
investors lost. SEC v. Vulliez, Civil Action No. 11-cv-3458 (S.D.N.Y.
Filed May 20, 2011) is an action against investment adviser Christopher Vulliez
and his firm Amphor Advisors, LLC. The court papers claim that between March
2010 and January 2011 the defendants raised over $700,000 from his close family
members and friends. The money, along with investments by Mr. Vulliez, was
suppose to be put in a biotech company. The investments were never made. Just
where the money went is not specified although what ever remains has been
frozen by the court.
The Commission filed a complaint alleging violations of
Securities Act Sections 17(a), Exchange Act Section 10(b) and Advisers Act
Sections 206(1) and (2). The action is pending.
The second is SEC v. Wallace, Civ. Action No.
4:11-cv-01932 (S.D. Tx. Filed May 20, 2011). The defendants are Huston area
real estate developers, David Wallace and Costa Bajjali. According to the court
papers, from November 2006 through December 2008 the defendants sold interests
in the Wallace Bajjali Investment Fund II, L.P. and the Laffer Frishberg
Wallace Economic Opportunity Fund, L.P. through their efforts and the
recommendations of an unnamed investment adviser who appears to be Daniel
Frishberg. According to the private placement memoranda the funds would limit
their investments to more than, respectively, 33% and 20% of any one business.
Both significantly exceeded the concentration limitations by heavily investing
in Business Radio Networks, L.P. or BizRadio. The complaint describes this
entity as a "struggling media company."
There is no allegation the either defendant did any due
diligence before putting much of the money investors entrusted to them into
BizRadio although it seems likely Mr. Frishberg played a role. There is also no
allegation that the defendants absconded with all or even part of the money. In
fact there is no indication of what happened to any of the investor funds
beyond putting substantial portions of it into BizRadio.
Two earlier SEC cases involving BizRadio suggest that the
investments have been largely lost. One names as a defendant Daniel Sholom
Frishberg who is also the CEO of the company. That action involved, in part,
the sale of notes in 2008 and 2009 from BizRadio. According to the Commission,
investors purchased the notes without being told that there was little
likelihood they would be repaid because of the condition of the company.
In another Commission enforcement action BizRadio was
named as a relief defendant. The complaint alleged the company had been the
recipient of part of the money from the fraudulent sale of notes by a Frishberg
associate (both cases which raise other significant questions, are discussed here). Since BizRadio seems to be
little more than a pawn used to facilitate fraud with some connection to Mr.
Frishberg it seems unlikely that the investors in Wallace will recover
much of their hard earned money - or at least the substantial part put into
Wallace only alleges
violations of the investment limitations in the PPMs. It settled with consents
by both defendants to the entry of permanent injunctions by each which preclude
future violations of Securities Act Sections 17(a)(2) and 17(a)(3). Each
defendant also agreed to pay a civil penalty of $60,000. No disgorgement was
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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